How to avoid being a software hoarder

Total software spending has become one of the top expenditures for modern enterprises. According to Gartner, global software spending will go up by 12.7% by the end of 2024, the most significant percentage increase in total global IT spending, outpacing spending on data center systems, devices, and IT and communications services. 

Considering that an estimated 30-50% of software is unused or underutilized, tech consolidation offers the potential for significant cost reduction. When it comes to SaaS, these potential savings are especially relevant. In 2023, small companies lost an average of $2 million from unused SaaS licenses, while enterprise companies lost as much as $127 million and forecasts for waste in 2024 are set to increase.

“Companies wasted an average of $18 million on unused SaaS licenses in 2023, a 7% increase from the prior year. Companies are throwing away money on underutilized software-as-a-service licenses, with such waste ranking as a top challenge for organizations struggling to keep their technology spending under control, according to SaaS management services.” 

– CFO Dive, 2024

Most organizations are over-consuming software and are bad at cleaning up on legacy installations. However, we are great at paying maintenance/software assurance when we don’t need to. Are you paying for the latest version but running older versions? Cutting redundant software tools or consolidating functionality with more holistic products is a surefire way to trim tech budgets, stay competitive, and increase the ROI of remaining tech tools. 

Legacy Challenge 

After time software becomes obsolete. Many vendors use End of Life (EOL) and Extended EOL. Legacy software comes with several challenges. Firstly, it is a security risk now that the vendor stops providing patches with security updates/fixes. Besides security, there may be issues with compatibility with application integrations, as you might not be able to update other applications connected to that software creating a further manual task. Then you may also have the challenge with skill shortage and competence on older applications – how are you affected if you lose your technical skills on specific applications? You might not be able to access the data from that application anymore. In essence, the data gets taken hostage by legacy applications.  

Purchasing vs Subscribing

Software vendors usually offer both an Operational Expenditure (Opex) and a Capital Expenditure (Capex) license alternative. But how do you know when to purchase perpetually and when to subscribe to software? Sometimes you don’t have an option you have to purchase and then pay maintenance; other vendors only offer different versions of subscriptions. If you are going to use the software on premise and use the same application for 4+/5+ years, I recommend you purchase the software perpetually instead of subscribing to it. With Cloud software you don’t have an option, however, if you have both an on premise and a Cloud purchase option, it is necessary to evaluate the function, lifecycle and maintenance costs. For example, majority of us have Microsoft Office Pro Plus installed and only need Office standard functionality. 

Decreasing Software Spend

One of the most common scenarios in IT is that a user requests a new application, the software gets acquired, installed and used and then you also get the invoice.  IT stops following up whether the software continues to be consumed, or has been updated to the latest version, but the business continues to pay the yearly or monthly invoice. The task of optimizing software spend is an on-going process. Companies are increasing the amount of hardware/software all the time, new vendors, new applications are added and increasing spend on enterprise software. The biggest key to actively deceasing software spend is usage. Why pay for something you don’t use? Why are you paying for enterprise software when you are only using standard version functionality?  

Walking the Edge of Compliance 

From a cost perspective you always want to stay as close as possible to the edge of incompliance. From an audit perspective you want to have some security. What is the best way to think when it comes to purchasing licenses, unused licenses and possible audit? This depends on you. What control do you have? How easy and fast can you change (uninstall or purchase licenses)? Who is the vendor, what is the chance/risk of getting hit by an audit? 

Accumulated Overspend

Let’s take a scenario; you are spending $10 million USD on software/licenses per year in total on all vendors and applications. How much of that is unused/used so little you wouldn’t want to pay for it or how much are over committed by? Here are 4 different examples of over commitment: 

1. Paying for Maintenance/Software Assurance: Not utilizing the benefits/virtualization rights or being on the most current version. 
   Let’s take Office, for example. You may not be using roaming use rights, you may be on version 2013 or 2016 and possibly even planning to migrate to O365. If you own the license, you can stop paying for the right to upgrade since you are on a legacy version and have the right to upgrade to the latest version. Moving to O365 means moving from a perpetual to a subscription license model. The best ROI can be achieved by stopping Software Assurance payments for your Office and delay moving to O365 as long as you can. Also, give everyone an Office 365 E1 license and as long as possible, utilize the perpetually owned office license. 
2. Cloud Commitment: Pre-committing to Azure or AWS then not using all of that spend. 
   Furthermore, not having control over what you have in an IaaS and the subscription just costing money month after month without any benefit to the business. 
3. Over-Licensing to a Higher Suite: With O365, Salesforce and many other SaaS solutions, it is common that you get a discount to get all your users on a higher suite. 
   This generally looks like a good deal for the first few years but then they increase the cost and you don’t know who needs a lower suite or standalone function/application.  
4. Duplicated Functionality
   How many BI-tools do you have? Or CRM? Or project management tools? Are you purchasing similar functionality with different vendors and applications? By categorization of all applications, you can see if you are paying for the same functionality from multiple applications.

By extrapolating the above to your software spend of $10 million, we can assume you can save 30%, which is also the percentage Gartner predicts you can save with good SAM software and a mature SAM program. That means that over 3 years you could have saved almost your entire software budget of 9 million. 

The key to this level of saving is Software Normalization. This allows you to optimize, calculate compliance or reduce cost as long as you can recognize the application. You can’t fight what you can’t see! 

The other thing you need is Active Usage. Now you know what you have and that’s a great start, but you also need to know how much the users are actively working in the application – people often open the application but do not actively use it. Take for example, Outlook; you open Outlook the first thing you do in the morning and then you don’t close it until you leave at 5PM – you haven’t spent all day just in Outlook, right? Active Usage presents compounded usefulness for more expensive applications like Visio, Project and CAD applications that are consuming tokens just by opening.  

What about when the application is not being used enough? Have you put a minimum usage limit for applications or vendors to be deemed an efficient deployment? If the application is used less than a certain amount of time, maybe you should not continue paying for it? Or to get an Enterprise or Professional edition of an applications, perhaps the user must use the application for a minimum of a predefined number of minutes per day? 

Xensam provides prebuilt reports for you to achieve the highest cost savings possible. You can gather Active Usage data on on-premise software, web applications and remote applications. This feature can be used to see ROI from investment in Xensam, within 60 days of deployment.